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Suppose your firm is considering investing in a project with the cash flows shown below, that...

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Finance

Suppose your firm is considering investing in a project with thecash flows shown below, that the required rate of return onprojects of this risk class is 8 percent, and that the maximumallowable payback and discounted payback statistics for the projectare 3.5 and 4.5 years, respectively.

Time:0123456
Cash flow:–$5,000$1,200$2,400$1,600$1,600$1,400$1,200

Use the PI decision rule to evaluate this project. (Donot round intermediate calculations and round your final answer to2 decimal places.)

Should it be accepted or rejected?

  • rejected

  • accepted

Answer & Explanation Solved by verified expert
3.7 Ratings (521 Votes)
Profitability Index PI decision rule to evaluate the project The Projects Profitability Index PI is the ratio of discounted annual cash inflows divided by its initial investment cost The Profitability Index PI is calculated by dividing the present value of benefits by present value of costs It considers the    See Answer
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